Friday, January 8, 2010

Everybody Likes Alcohol Taxes, Except Us Drinkers.

Taxes on alcohol, especially spirits, are outrageous. About 60 percent of the money you spend for a bottle of bourbon goes to some government entity. It is further broken down for you here.

Public policymakers justify these outrageous taxes because it is considered socially beneficial to make alcohol much more expensive than it needs to be, considering how much it actually costs to make and deliver the stuff, to discourage abuse. They also might argue that it is justified to defray the social cost of alcohol abuse, in terms of law enforcement, health care, social services, etc.

However you rationalize it, this is manipulation of the tax code for social engineering purposes and it is supported equally by liberals and conservatives.

Prohibition itself made strange bedfellows of liberals and conservatives, liberals who believed the abolition of alcohol would improve the human condition, uplifting the poor in particular; and conservatives who believed alcohol consumption was a sin and usually occasioned additional sinning, plus drunk workers were bad for industrial productivity.

One could argue that high taxes help keep alcohol legal, since however much politicians might like to earn points by attacking Big Alcohol, they are loath to give up all those tax dollars.

Most taxes on things we buy are a percentage of the price, but most alcohol taxes are not. Most though not all of them are on the alcohol content, meaning that the tax bite for the cheapest vodka is about the same, in absolute dollars, as for the most expensive one.

With state and local taxes, some are based on price, so buyers of premium spirits do pay more, but most are based on alcohol content, without regard for the product's price.

So the differences in price among products that all have the same alcohol content is generally not attributable to taxes.

Because of this, while more expensive products should obviously be more profitable, more expensive distilled spirits products are much more profitable since the average tax burden falls sharply as the price goes up.

The actual social benefit of high alcohol taxes is dubious since only a small percentage of alcohol consumers are abusers and only a small percentage of abusers are likely to be deterred by price, but hypocrisy in the tax code has also long been supported by liberals and conservatives alike.